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Blue Ocean Strategy and FBA — why you should sell globally on Amazon.

It’s easier.

The end.

Alright so it’s not quite that simple, but it is close in a number of meaningful ways.  In upcoming blogs I’ll explain the differences between selling in the US and everywhere else, but here let me explain more specifically the philosophy behind why you should sell everywhere else, first, and maybe exclusively.


There’s a brilliant book from Harvard Press called Blue Ocean Strategy.  It is one of the better books on business I’ve ever read. Fittingly, you can buy it on amazon.

Blue Ocean Strategy.

 

The basic gist, of the book, is that the best way to deal with competition, is to modify one aspect of your business so that you are no longer competing.  I’ll refer to two case studies from the book, briefly, as examples.  I read the book years ago, so there’s an extent to which these anecdotes will be filtered through time and my (mis)remembering, so, be forewarned.

Case Study #1
The circus business was a costly one for everyone involved.  The financial hurdles of moving a circus from town to town, as well as the humanitarian (and monetary) issues of dealing with animals, were complicated.  Also given that the target audience for circuses (okay, Circii!) was middle-lower class, the margins simply weren’t favorable.

One company decided to just throw away some of the general agreed upon facets of what circuses (Circii) were about.  They got rid of the animals. Got rid of the traveling.  Targeted the middle and upper class.  And suddenly circuses were profitable again.

Case Study #2
Wine was a profitable enough business, however most wine brands (labels? vineyards?) all played the same basic strategy for selling wine.   The target audience was refined (or snobby, depending on your perspective) you know, the tennis/opera crowd, the labels were generally bland (I picture brown labels with leaves, and maybe the word “oak” or “wood” somewhere in the name).  Also, the basic operating belief of wine is that you need to have a refined palette or sense of taste to enjoy it.  If you give a $200 bottle of wine to a layperson they won’t enjoy it, generally.   Also, there were inventory problems, keeping track of dozens of vintages, pressings, etc.
One company said: “Screw it.  Forget the opera crowd. Let’s target people who go to baseball games.  Forget brown labels like ‘oakwood havencrest’.  How about a BRIGHT YELLOW LABEL with a kangaroo on it.  Why is wine $200? Why not like..$15?” Also, I bet our inventory control problems go away if we have exactly TWO types of wine. A red and white.”

I don’t remember the exact sales stats for YELLOWTAIL wine, but I do know that now when I go into a grocerystore the wine names are less “OAKHAVENCREST” and more “MENAGE A TROIS”, so if you can create a popular wine brand around the idea of three people having sex with each other, things are probably loosening up a bit.

The Current Amazon Environment

The current conventional wisdom for selling via FBA goes something like:

  1. Find a “Good Product”
    1. Costs $15-$25
    2. Fits in a Shoebox
    3. Non Electronic
    4. Non Glass
    5. Lightweight
  2. Sell it on Amazon.com

Even stating “2” is a bit generous there, because it’s actually just assumed.

The problem is that when every single person is doing this, it becomes harder.  We can’t all sell salt and pepper shakers, and silicone baking mats, right?

So in order to find uncontested (or blue) oceans, it’s better to change one of those above variables, and in my opinion, the easiest one to change is #2.

Don’t sell in the United States.  Sell everywhere else.

In an upcoming blog I’ll explain in more detail while selling abroad is better, for beginners and experienced Amazon sellers alike

 

 

SuperURLs and How (not) to use them.

By the end of this article you will learn how to make SuperURLS that

  1. minimize your chance of breaking Amazon TOS, and
  2. don’t affect your items conversion rate negatively like traditional SuperURLs and
  3. increase your item sales by increasing your keyword rank.

First off. SuperURLs might be against Amazon TOS.

Historically we’ve told people NOT to use them because there’s a (slim) chance that Amazon might frown on their usage as being rank manipulation and then decide to ruin your day/week/life as a result.

So, if you don’t want to risk it, go ahead and skip everything else and go back to whatever you were doing before.

That said, we think there might be methods which are less of a violation, and certainly less detectable.

But first:

What is a SuperURL?

TLDR; a SuperURL is a link to your product that, when purchased, will increase your product’s Keyword Rank.

What is Keyword Rank?

TLDR; Keyword Rank is a measurement of how “right” Amazon thinks your product is for customers typing in a certain keyword.

e.g. If a customer types in “ninja turtle” and your Ninja Turtle Sheets show up as the 458th result, that means

a. that you’re. not making any money from people typing ninja turtle, and b. there are 457 items that people are _more likely_ to buy when they type in the word ninja turtle.

How do SuperURLs work?

Amazon tracks pretty much everything.  So, if you go to Amazon.com right now and type in “ninja turtle” (sorry for this example it was the first thing that popped into my head)

Amazon will bring you somewhere like this.

If you look closely at the URL that your search brought you to, you should notice something.

https://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias%3Daps&field-keywords=ninja+turtle

Your keyword has been stuffed into the URL. That’s Amazon’s way of keeping track of what brought you to these items.

If you click on the second item, it’ll take you to a URL that looks like this

https://www.amazon.com/Nickelodeon-Teenage-Turtles-Pillowtime-Raphael/dp/B00BMU0TFS/ref=sr_1_6?ie=UTF8&qid=1509822998&sr=8-6&keywords=ninja+turtle&dpID=41TSJrK90WL&preST=_SY300_QL70_&dpSrc=srch

Amazon is still tracking the keyword that brought you here.

If enough people purchased this item from this URL, Amazon would think “Wow, a lot of people are typing in Ninja Turtle and buying this” and eventually “Maybe we should show this item FIRST when people type in Ninja Turtle?”

That URL is called a “SuperURL”, or more specifically a 1-click SuperURL. Because a person clicks ONE URL and then purchases the item.

1-Click SuperURLs are kind of bad.

Why are they bad?

Glad you asked.

Remember when I said that Amazon measures everything? They measure EVERYTHING. They are like…meth heads when it comes to compulsive measurement.

One of the things they measure is your conversion rate.  Your conversion rate is the # of times a person looks at your product and says “You know what, I DO want to buy this.”  They get converted from a shopper to a buyer.

So if 10 people look at your listing and five of them buy, you have a conversion rate of 50%.

Remember back when we said Amazon takes a lot of things into consideration when showing your items to shoppers? You can probably bet that conversion rate is one of them.

1-click SuperURLs can tank your conversion rate

So what most Amazon FBAers do is generate one of these SuperURLs using a service like AmzTracker, and distribute them to fifty gazillion (approx) people who then all go straight to the page and then 1 percent of them buy the item, which now means your conversion rate is 1 out of 50 gazillion, which is, you know. Low.  Like. Flo Rida low.

The conversion rate for this album has dropped in recent  years.

So…what then?

Enter 2-click SuperURLs. Or SuperDuperURLs

Yes. I’m a grown man that used the word SuperDuper. We will get through it, together.

A SuperDuperURL (oh my god the POWER) is a new type of SuperURL which carries the benefits of SuperURLS but with extra Duper in it, (drunk on power), because it doesn’t carry the risk of destroying your conversion rate.

Instead of taking a person directly to the product, a SuperDuperURL takes you to your storefront, as if the user had typed in the keyword.

Now if a person clicks decides they don’t want to buy it, and browse away, your conversion rate stays intact, but if they click through, and purchase, it will be as if they typed in the word “ninja turtle” and decided to purchase it.

Best of both worlds.

How do I make a SuperDuperURL and Can I please call them 2-click SuperURLs I have dignity.

Amachete makes it really easy.

First click on My Products on the menu.

Then open the product you wish to create a Super(duper)URL.  Make sure to choose the right marketplace as, obviously, Super(Duper!)URLs are marketplace specific.

Once you click on the SuperURL button on the right-hand side you’ll be prompted with a window.

This window is where you choose the keyword you want to rank for 

It will generate a Super(Duper)URL which you can then distribute to potential buyers, increase your keyword rank, and increase your sales.

Happy Selling!

Q&A: What do I do when the 999 trick won’t work?

This is a good question without a lot of public answers on the internet so I figured I could help.

Why The 999 Trick Won’t Work

Some sellers restrict the number of items a person can buy.  There are a number of reasons to do this, but the primary reason is probably to prevent having your inventory cleared out through a misconfigured coupon code.

The second reason is to keep your competitors from knowing when you’re running out of stock.  There are a number of things you can do to take advantage of your competitors stockouts, we’ll save that for a later post, but for right now I’ll explain how to fairly accurately track the inventory of an item. that has this blocked using it’s BSR.

What is BSR, in this context?

While no one knows exactly how Amazon’s ranking method works, it’s safe to say that one of the strongest determining factors is sales per day.

So if an item with a BSR (Best Seller Rank) of 10 sells 20 per day, and an item with a BSR of 20 sells 10 per day, it’s safe to assume that an item with a BSR of 15 sells somewhere between 10 and 20 per day.

However it’s a little more specific than that, because Amazon calculates this number _per_ category.  That means an item with a Best Seller Rank of 20 in PETS might sell far more than an item with a BSR of 20 in “Industrial & Science” because it’s like 99% more fun to buy a dog a pet than it is to buy a pocket protector. That’s science.

Use Neighbors

Because of the “category specific” ranking you can use the category neighbors of an item to find the rank.

Let’s use an example

This Zilla Premium Reflector Dome has a BSR of 818 in Pets.  Lets pretend the 999 trick isn’t working.

What you would do is try to find a BSR of AROUND 818 in the Pet Department and track that item instead.   You could either click on one of the sub category links or browse through the main category.

By browsing through the main category, using the extension we see that there’s an item with a BSR of 811 right above it.

And using the sales estimate for this item we can see that it appears to sell 1 – 2 more items per day on average.

By clicking *track* on this item, Amachete will automatically perform the 999 trick on this *neighboring* item every day, and we can use *that* items BSR/Sales per day to very accurately predict what the daily sales are for the heat lamp.

I hope that helps, Chris.

Sincerely,

Phil

 

How do Amazon Index Checkers work? (And can they get your account suspended?)

An Amachete user (Thanks Henrik!) recently referred me to this review, where someone suggested that a Keyword Index Checker got their account suspended.

The two most important things for me, with Amachete, are the privacy of user data, and preventing our users from engaging in TOS violating behavior.

Since an Index Checker is a fairly trivial piece of technology, it’s on my “list of things to do”, so I thought it’d be worth taking a moment to see whether or not this review has any merit, and answer the question:

“Can a keyword index checker get you suspended?”

Wait what’s a keyword index checker?

Well, to answer that question, you have to know what being “indexed” is.

Let’s say, for some inexplicable reason, you decide to sell ‘pet birthday hats’.

Before you go into it, you decide to check out the competition, so you type ‘pet birthday hats’ into Amazon, and a number of listings pop up.

http://imgur.com/a/YwOqL
All of those listings are *indexed* for Amazon’s database, for the search term ‘pet birthday hats.‘  Meaning that because of their backend/front end keywords/search index/whatever Amazon thinks these accounts matter.

So why do I care about Keyword Indexing?

Periodically, for reasons that aren’t entirely clear, to me anyway,  Amazon doesn’t always index your item for Keywords.  Maybe when you uploaded your flat file there was an error. Maybe you changed root nodes and something didn’t save right.  Whatever. Periodically your sales will just slip away and it’ll be because you aren’t indexed for  ‘pet birthday hats’.

More simply: Users type in the phrase, your listing doesn’t show up.  You aren’t indexed.

How do I know if an ASIN is indexed for a keyword?

Pretty easy. If you do a search for that keyword, and the ASIN, it’ll show up, and be ‘above the fold’.  Here’s a link you can try:

https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=%22pet+birthday+hats%22+B00CJQ3B6S

http://imgur.com/a/oIO5n

You can see that the image/item is what i’d call “hard indexed” because it’s above the bar “pet birthday hats see all 22 results”

Compare that to this search

https://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias%3Daps&field-keywords=%22cat+feeder%22+B00CJQ3B6S

http://imgur.com/a/6iBEE

 

You can see that this item is nowhere to be found for “cat feeder.”  It is completely UNINDEXED.

Now, for a third example “puppy birthday hat

https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=%22puppy+birthday+hat%22+B00CJQ3B6S&rh=i%3Aaps%2Ck%3A%22puppy+birthday+hat%22+B00CJQ3B6S

http://imgur.com/a/bxryP

 

I would say this is “soft indexed” meaning that Amazon knows that this item *probably” is right for this search term, but it’s *not* because this phrase is in the product listing. (because this person hasn’t put the word puppy in the product description, rookie move.)

That suspicion is confirmed here, by checking to see if it’s indexed for “birthday hat”

https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=%22birthday+hat%22+B00CJQ3B6S&rh=i%3Aaps%2Ck%3A%22birthday+hat%22+B00CJQ3B6S

 

 

Okay great, so I can search for all my search terms, with my ASIN to make sure that Amazon has them indexed?

Yes.

Awesome! Wait that’s going to take a while, someone should make a program that…OOHHHHHHH.

Exactly. A keyword index checker is a pretty boring piece of technology in the grand scheme of things.  All you do is ask the user for a list of search terms (Cut and pasted from their back end), their ASIN, and then visit the above URLs with all of the search terms, and compare the results and make sure that they are there.   Using the trial of KW Checker indicates just that it does exactly that.

http://imgur.com/a/TzTuR

Interesting thing here, is that it appears that “puppy” is actually indexed for this listing, which makes me reconsider my initial thought about “puppy birthday hat”.

http://imgur.com/a/kQCcz

 

Interesting.  Removing the quotes gives some credence to the idea that Amazon, through some mechanism or another indexes search terms (“puppy birthday hat”) differently than they do back end keywords (“puppy, birthday, hat”) as this item shows up as being indexed for the keyword one, but not the search term one.  However it does show up for the search term “pet birthday hat” which is right there in the title.

This will take some diving into, but my current thought now is that if you have a search term that is converting, make sure it’s _hard indexed_ and not soft indexed.

You’re rambling. What does this have to do with KW Checker?

It just means there’s no way that KW Checker caused that guy’s account to get suspended.  Why? Nothing links KW Checker to the selling account. *

Without this link between seller and checker, it’s harmless, because if it *were* harmful without the link  you could weaponize KW Checker.

You can have all these search terms! Can I have your vote?
You can have all these search terms! Can I have your vote?

You could easily use it to shut down your competitions accounts simply by taking your keywords and aiming it at their asins and running it again and again and again.  There’s no world where if you just enter a bunch of asins and keywords and check them constantly then Amazon will just start shutting down all those listings.

*Unless you are a tinfoil-hat person who thinks that Amazon is linking your browser activity to your seller account, etc etc,  which is really the path to madness.  If this is really a concern, (which it shouldn’t be), then just use a proxy or a different person’s computer but honestly don’t bother.

In closing…

The good news about KW checker is that it’s almost certainly safe for checking keyword indexing. The bad news is that it’s probably not very good for checking search terms.

Jeff Bezos’s Yearly Letter, and what it means for FBA Sellers?

Jeff Bezos published his annual letter, where he just sorta Bezoses everywhere much to the delight of shareholders and Amazon fans, which don’t have a nickname, until now…. Amafans.

Thank me later.

So, what does his yearly letter mean for you as an FBA seller?

They're curious, but I assure you, they will escape unscathed.
They’re curious, but I assure you, they will escape unscathed.

Not much.

Sure, there are tangentially interesting things for you, of course, the idea that Amazon uses Machine Learning to help with product rank, fraud detection, language translations, that’s all great.  But it’s not actionable.  You aren’t going to click on “MACHINE LEARN MY FBA BUSINESS” any time soon.

But there’s a lot to learn from his yearly letter, because he doubles down on his concept of … DAY 1.

I’m not going to describe the entirety DAY 1, because that’s why he wrote the letter. So he could restate it. Not so that I could restate his restatement for you.

That’s nonsense.

But since you might be either lazy or busy I will break it down into a super pithy phrase:

“Act fast, Act confident, Accept the new.”

Act fast – Don’t spend a ton of time making your decisions. Just do them. It’s like the lean methodology, FAIL FAST. It’s better to make all your mistakes in the span of six months than it is over the span of six years.  You’ll get to the same place both routes, it’s just that the first route leaves you with five and a half more years to figure it out.

Act confident – I very, very, very, intentionally did not write “Be Confident”, because that’s a very different thing. Being confident suggests that you have thoroughly vetted the decision you are making, and feel like you have a good handle on things. This is good if you are (say) performing an organ transplant.

This is bad if you are (say) picking a product to launch on Amazon.co.jp.   The difference between the outcome of a 70% confidence decision and a 100% confidence decision is generally trivial.  Especially if you’re making those decisions quickly.  The difference in the time it takes to go from 70 to 100% confidence is significant.

Accept the new – I used the word Accept here just so I could keep the Act- theme going, but really it should be something like Embrace. Or Chase.

When I first started selling on Amazon, 18 months ago. Everyone said “Focus on America, there’s so much demand” but I just didn’t have the time or energy to deal with it.  Amazon.de seemed different. New even.

Two months later I had a product generating four figures profit, with 1 picture and no reviews, with copy that I made using google translate.   Selling outside of America was new.  And since I’ve accepted it, early, I’ve been able to help other people like you find low-competition profitable opportunities abroad.

In the next post I’ll go into more detail about more examples of how you can apply “Day 1” to your Amazon FBA business, but for now just remember to Act Fast, Act Confident, and Accept the new.

VAT and Amazon and You – Part 3. VAT for Importers.

You’ve done it. You’ve found your product. Found suppliers. Got a sample. Picked a manufacturer. Placed your order, and arranged shipping.  Your products are en route to an FBA shipping center in (GERMANY, ENGLAND, FRANCE, OTHER)… but wait.

...collaborate and listen.
…collaborate and listen.

Now someone wants an IMPORT DUTY (VAT) from you.

Let’s say you bought 1000 sofas from China for $10 each. I’m not sure why you want 1,000 sofas. I’m not sure why they only cost $10. Both of those things sound like absolute nonsense, but I’m not here to judge you, your buying habits, or your excessive need for cheap sofas. I’m here to help you understand VAT.

When FedEx delivers these Sofas (sure) from China into the EU, you’re going to have to pay an IMPORT DUTY based on the price of the Sofas.

Your IMPORT DUTY(VAT) rate will vary based on the country, and the product, but for sake of simplicity we’ll say it’s 20%.

The price you pay, upon importing those Sofas is $2,000.   (10% times 1000 sofas times $10/sofa).

“But …why? Why?”

Because if you’re going to conduct business out of the country, the government wants/needs to collect taxes from you, both to stop the death flotillas, but also to give local businesses (who paid taxes) a shot and also  so that the economy doesn’t hemorrhage money.

“But…why am I paying a tax, on something I’m going to sell? I thought the WHOLE POINT of a VAT, Value Added Tax, is that I get taxed when I add value. Not just when I show up with all my glorious sofas!”

The thing is… t’s basically your word against the government’s that you’re going to sell those sofas.   What if you don’t? What if you just give them out? Or what if you stack them? Or what if you use a new sofa every week, throw away the old ones, and then have essentially bought yourself (1000/52) 19 years worth of sofas?  You have to be taxed on that sort of wasteful stupidity.

Or you have to sell them.

Then when you sell them for $20, you tack on the country’s 20% VAT ($20 sales price, $4 VAT, total price $24) and at this point you have sold 1000 sofas for $20 and charged ($4 VAT times 1000 sofas) $4,000 in VAT.

YOU: Hey government. I really sold those Sofas.  Look here’s the receipts.
GOVERNMENT: My bad bro. We thought you were a stacker.  Here’s your $2,000 back.
YOU: Oh. Thanks!

And that is the basics of how VAT works for importers.  You pay a VAT on import, and then tack on a VAT when you sell, and get reimbursed for that initial VAT import duty.

Now, there’s one last wrinkle of complexity, and that has to do with how much stuff you have to sell before the government swoops in to take a bite, and where your goods are stored and how that affects your VAT liability, but lets save that for the 4th and final post.

VAT and Amazon and You – Part 2. What is VALUE ADDED TAX ?

You can probably guess from the name:

VALUE ADDED TAX(VAT) is a tax on the value added to an item.

Content Marketing is EASY!
Content Marketing is EASY!

But just in case that’s not entirely clear, lets revisit our Salt and Pepper shakers from yesterday.  Actually, no lets try a new product, I’m sure we can find one that’s been done to death in one of the “Amazon Review Groups.”

Screen Shot 2016-09-01 at 7.56.51 AM

Pour over coffee maker? Yikes.  This is a bit saturated, but okay.  Here’s how VALUE ADDED TAX works in the world of product sales.

Unlike SALES (Consumption) TAX which is applied at the last stage of a product (Right before it gets thrown in the trash), VALUE ADDED TAX (or VAT) gets added (surprise) each time value is added to the product.

Let’s assume the VAT for this country is 10%, just because that’s easier mathetmatically.

So… assuming this is made out of metal, a… it’s rare that you get to use a word for the first time in your life, but I’m pretty confident this is that time for me.  Here it comes… a metallurgist (maybe?) takes a bunch of metal and using something that is probably not super safe or easy to use bangs this into shape and sells the raw pieces to the manufacturer.

METALLURGIST: I’m not putting this together, but you can CLEARLY see that if you did, it’d be a pour over coffee maker.
MANUFACTURER: Yeah I can put that together, no big deal, how much?
METALLURGIST: $1
GOVERNMENT: AHA! YOU MADE SOMETHING OF VALUE.
METALLURGIST: Crap. Yes. I did.
GOVERNMENT: 10% GIMME.
METALLURGIST: Wait why again? Oh right. Death squads. Here. Take it.
GOVERNMENT: KTHXBAI. SEE YOU IN A MINUTE MANUFACTURER.

TOTAL SPENT: $1
TOTAL VAT COLLECTED: $0.10

Now the manufacturer has his employees assemble the pieces for this pour over coffee maker, slap a box on it, and a label, and then sells it to YOU, the RETAILER.

RETAILER: I’d like to buy ONE pour over coffee thinggy, just to see if I can sell it on Amazon.
MANUFACTURER: Sounds good that’ll be $1.50.
RETAILER: Damn that’s cheap. I can probably sell this for like $15.
MANUFACTURER: Okay, fine $1.75.
RETAILER: I desperately need an inner monologue.
MANUFACTURER:  I meant $2.00.
RETAILER: Sigh. I’ll take it.
GOVERNMENT: WE MEET AGAIN. YOU ADDED MORE VALUE!
RETAILER: That makes 2 of us.
MANUFACTURER: Shh. Death squads. That’s a real thing. Show some respect.
GOVERNMENT: 10% please.
MANUFACTURER: Of $2? Fine. This costs $2.20, I’ll give you your twenty cents if that’s what it costs to NOT have death squads.

Screen Shot 2016-09-01 at 8.26.15 AM
GOVERNMENT: No, not TWENTY cents. Just TEN.
MANUFACTURER/RETAILER: Wait what?
GOVERNMENT: Paying TWENTY cents would mean the TOTAL VAT for this would be 30 cents, 10 cents from before, and 20 cents now. I don’t need you to pay for the value THE METALLURGIST added. Just the value that YOU added. Which was $1. So, 10% of $1 please.

TOTAL SPENT:$2
TOTAL VAT COLLECTED: $0.20

It’s probably worth restating.  In a VAT system the government doesn’t tax for the price of the item. The government only taxes for the *additional* value of the item, at each step.  The value added. So if you make something for $10, and sell it for $20, you’ve added $10 of value, and will be taxed on those $10.

If the person who bought it from you for $20, then sells it for $25, they’ve only added $5 of value to it, so they get taxed on that $5.

If that person then sells it for $200, after purchasing it for $25, they’ve added $175 of value, and will be taxed on *that*.
With me?

So, to re-state. Value Added Tax is applied to a product on the value that is added to it at each step of the chain.

WHEW.

We’re not done yet, but we’re close.  There are TWO more aspects to Value Added Taxes, and once you’ve learned that, you’ll have learned as much as you realistically need to know.

Those two things are IMPORT VAT, and THRESHOLDS.   But we’ll save those for later posts.

VAT and Amazon and You – Part 1. What is SALES TAX ?

VAT.

There. It’s worth staring at those three letters for a little bit, because you’ve probably seen them before, and they made you a little sad inside.  That’s perfectly okay. That’s a perfectly healthy reaction. VAT kinda sucks, especially when you don’t understand it.

By the time you’ve finished reading this series of posts  you’ll understand exactly what it is, how it affects your business, and the easiest way to set up your company so that you rarely have to deal with it again.

VAT is the European equivalent of SALES TAX.  It stands for VALUE ADDED TAX.

While it is the EQUIVALENT of sales tax, it is not the same, and perhaps the best way to understand VAT is to understand how it is different from SALES tax, and maybe the best way to do that is to have a good understanding of Sales Tax.

Think of sales tax as a consumer tax.  Or more specifically, a tax for when a product is consumed.  It is at the end of the line.  You have purchased a laptop, or silicone glove, or salt and pepper shaker, and that’s it.  It’s done. Chances are the next place this thing is going is the trash.  Sales tax is the tax that is applied to a product right before it gets thrown in the trash.

But before it was SOLD/CONSUMED, that thing had a pretty exciting life. Let’s check it out… we’ll use SALT AND PEPPER SHAKERS.

Striking.

Okay. So in order for these to show up on the shelf at Amazon, a number of things had to happen, starting from manufacturing, and at each step the government checks to see if this product has been consumed.

MANUFACTURER: Dear glass-maker.  I’d like to buy some glass.
GLASS MAKER: Sure thing, it’s $1.
GOVERNMENT: HEY GUYS ARE YOU THROWING THAT AWAY WHEN YOU’RE DONE?
GLASSMAKER/MANUFACTURER: No!
GOVERNMENT: jeesh sorry relax guys just asking

TOTAL SPENT: $1
TOTAL TAXED : $0

The manufacturer then realized it needed some wood because you cant just sell a glass tube and call it a salt shaker.

MANUFACTURER: Dear wood-grower, I’d like to buy some wood.
WOODGROWER: Sure thing, $10.
MANUFACTURER: Seems high.
WOODGROWER: Tough. You think this shit grows on trees?
MANUFACTURER: …
WOODGROWER: Okay fine. $1.
MANUFACTURER: Deal.
GOVERNMENT: HEY GUYS ARE YOU THROWING THAT AWAY WHEN YOU’RE DONE?
MANUFACTURER/WOODMAKER: NO!
GOVERNMENT: chill out guys just asking.

TOTAL SPENT: $2
TOTAL TAXED: $0

 

Having attached the wood and glass in the shape that would be most conducive to pouring pepper (or salt) on food, the manufacturer now decides to sell this glorious salt shaker to someone who will handle all of the sticky stuff like getting a person who has visited Amazon.de to think this is better than the other 900 salt shakers on the market, and to handle all of the questions like “Dear person who sold me this. Will this work with, say, rock salt, or glue?”  This, poor, sainted person, is you, the retailer.

RETAILER: I’d like to sell some of your salt shakers to the public at large.
MANUFACTURER:They’re $3 each. Are you sure you want to do this to yourself?  You know that’s going to be kind of unpleasant right? Maybe you could learn a trade?
RETAILER: Nah,  at $3 I can sell that for literally 10x more than you’re selling it to me for.
MANUFACTURER: Did I say $3 each? I meant $5.
RETAILER: Okay sweet. What’s your MOQ?
MANUFACTURER: One, I guess.
RETAILER: Okay I’ll take 1.
MANUFACTURER: $5
RETAILER: Okay I thought it was $3 each.
MANUFACTURER: It was.
RETAILER: Okay here’s my credit card.
MANUFACTURER: I promise not to keep an eye on your business and then cut you out of it later when you’ve created demand.
GOVERNMENT: WOOHOO BIG MONEY IS IT GOING IN THE TRASH YE–
RETAILER/MANUFACTURER: NO.
GOVERNMENT: you guys are mean.

TOTAL SPENT: $7.
TOTAL TAXED: $0

You, the retailer then ship it to Amazon, who then presents it to the customer, who then then BUYS it from you, through Amazon.

CUSTOMER: Oooh. This salt and pepper shaker set is striking.
RETAILER: Yep I know.
CUSTOMER: Nice pictures.
RETAILER: Thanks, I spent extra on those.
CUSTOMER: Your copy really sells the benefits, and not just the features, fancy.
RETAILER: Yep, that’s no accident.
CUSTOMER: I’ll give you $50 for them.
RETAILER: [gasp] I mean, sure, sounds fair.
GOVERNMENT: ALRIGHT THIS HAS TO BE GOING IN THE TRASH NEXT.
CUSTOMER: Of course it is, I’m not passing it down for generations it’s just a salt and pepper shaker.
GOVERNMENT: GIVE ME 10%
CUSTOMER: Why?!
GOVERNMENT: Because you live in a land without death squads rolling around shooting people up.
CUSTOMER: Fair.

TOTAL SPENT: $57  ($7 manufacturing, $50 retail)
TOTAL SPENT ON TAXES: $5 (10% of retail price)

And that’s how SALES tax works.